BANKRUPTCY vs. CONSUMER PROPOSAL
A bankruptcy and a consumer proposal are both legal options offered to help you deal with your unmanageable debt load. They both can be effective ways of reducing or eliminating your debt.
Both options are available for those individuals who are experiencing a high debt load and to protect you from any legal actions including; harassing collection calls and notices, wage garnishment, and possible lien registration. A consumer proposal and a bankruptcy are both governed under the Canadian Bankruptcy and Insolvency Act and they can only be administered by a Licensed Insolvency Trustee.
A consumer proposal is a debt relief option which allows you to consolidate your debts. It is a legal process between you and your creditors to repay a portion of what is owed. A Licensed Insolvency Trustee will negotiate with the creditors on your behalf to reduce the amount of debt owed and to stop interest charges. The amount of debt to be repaid is based on your income, assets, and total debt load.
A bankruptcy is another debt relief option which can help you deal with your outstanding debt. In bankruptcy you would assign certain assets to a Licensed Insolvency Trustee; in most circumstances you would be able to retain your assets.
In the table below we have highlighted some of the points for a consumer proposal and a bankruptcy:Consumer ProposalBankruptcyMaximum debt load of $250,000 (Excluding residential mortgage).There is no limit on the debt load.Offered to individuals.Offered to individuals and companies.Protection from legal actions, collection calls, and wage garnishment is immediate.Protection from legal actions, collection calls, and wage garnishment is immediate.Once filed, creditors have 45 days to vote “For” or “Against” the Consumer Proposal. Once approved by the majority of the creditors, the Proposal will be Court approved 15 days later unless there is an objection.No voting is required.You are not required to surrender your assets.While certain assets are protected, debtor must surrender or repurchase some of his/her assets.Once paperwork is done, income during the proceeding is not required to be reported.Income and expenses are reported monthly. An increase in income can increase the payments and it might also extend the term of the bankruptcy.Debtor must attend 2 mandatory counselling sessions.Debtor must attend 2 mandatory counselling sessions.Any tax refund belongs to the debtor.Any tax refund is part of the estate and belongs to the creditors.Consumer proposal can last up to 5 years or the debtor could provide an immediate payment. The debtor has the option to pay off the Proposal faster to rebuild their credit.A first bankruptcy will last a minimum of 9 months. If the debtor has income above a certain threshold he/she will be bankrupt for a minimum of 21 months. The second bankruptcy will last a minimum of 24 months and up to 36 months if income is above a certain threshold.
If you miss 3 payments the Proposal is considered annulled. Protection from creditors will be withdrawn and they will have the right to pursue collection action against the amount owed. Once the payments are complete, the Administrator will issue a Certificate of Full Performance. At that point the debts are discharged.Trustee will only issue the certificate of discharge once all the bankruptcy duties have been complied with and all required payments are made. At that point all debts are discharged.
A Consumer Proposal will remain on your credit report for 3 years from the date payments are made in full.A first bankruptcy filing will remain on your credit report for 7 years from the discharge date. A second bankruptcy filing will remain on your credit report for 14 years from the discharge date.
The bankruptcy and the consumer proposal have one key advantage over other debt relief options; they are both legally binding against your creditors. It is important to carefully consider your available options and choose the one that is best suited to your financial circumstances.
If you feel your debt load is too much to handle and you are overwhelmed by your current financial situation, we are here for you. At Sheriff Sole & Madej Inc. our commitment is to find the best solution for you. Call us at 1-844-482-3328 to book a free confidential consultation. We offer services in 12 convenient locations throughout the Greater Toronto area with staff members that speak over 7 different languages.
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